motion to separate budget analyst's recommendation and the language as read into the record for item 6. we have that motion and do that without objection. on the two underlying items as amended, do we have a motion? >> approve with recommendations. >> we have got a motion to send both of those items forward as amended to the full board with recommendation and we'll do that without objection. thank you very much. >> item no. 7, ordinance amending ordinance no. 165-12 annual salary ordinance to reflect the addition of five positions in the office of treasurer and tax collector for the implementation of proposition e and the gross receipts tax. >> would you call item no. 8 as w. item no. 8, ordinance

appropriating $1,566,145 from the general fund reserves so to the san francisco department of treasurer/tax collector for gross receipts tax implementation planing for fy2012-2013. >> these two item goes hand in hand. so we have, i believe greg cotto from the treasurer/tax collector to present on these two items. >> good afternoon, supervisors. thank you very much for taking up these items. and i did want to, before i get into this presentation, thank the mayor and particularly the mayor's budget office and controller and his economic team, as well as the city attorney's office. president chiu, supervisor

farrell and supervisor avalos. i would like to give a brief overviewhoun it changes things fort taxpayer and how the office of treasurer/tax collector interacted with the public. the ordinance was passed on november 6th. and it does not apply to the 2013 or prior tax years. and just for your information, tax year is january 1 through december 31. and that affects our payroll expense tax, as well as the new grot gross receipts tax. we will be collecting register fees that affect the '13-14 fiscal year. so if gets collected in advance. payroll expense taxes are over

a calendar year and they are filed in arrears, although we do make -- we ask that the taxpayers make quarterly payments. so the changes to the gross receipts tax and payroll expense tax that war mandated by the proposition commenced january 1 2014 and the first filing that is affected will be business registration fees are collected on may 31, 2014 and the tax filesing thereafter will be impacted and we'll be providing information specifically about how to fill out your tax forms and such to taxpayers in 2014 to apprise them of these changes and we're also going and talking with the community, even now. some background on the business taxes. they are the second largest city tax that will be approximately $500 million annually at rollout. the businesses that are

actually filing and paying taxes under the gross receipts tax versus the payroll expense tax will double and we'll see approximately 20,000 business has we'll interact. where previously only 10,000 were filing and 7,000-8,000 were paying. all businesses will have new registration fees and all businesses will have to report to us new information in order for us to establish what the registration fee is. so this is going to impact every single business in san francisco. and for your information, and for the public's information, we have set up a website that provides some of this information. at sftreasurer.org/grossreceipts. we have found when we have gotten questions from taxpayers i would say 80-90% of the questions were answered by what is on is this this slide. we have been happy so far with the responses and we'll continue to provide more information as needed. one thing i wanted to indicate

that we our office is very proud of is that we have had a very successful initiatives that are ongoing, that have impacted how taxpayers. including moving to online filing. we're currently in the midst of adding parking tax to registration payroll expense and transient occupancy tax for online filing and we're also in the midst of implementing a new cashiering system. we'll have our first fully consolidated license bill for all of our collected licenses going live for the march 31 renewal cycle that. is a major impact to those 19,000 licenses in the city. and we have procured a new business tax system called -- [speaker not understood]

from thompson rueter. this replaces the system from past. >> on the initiatives that are currently in place, are those mostly completed? how do they get impacted by the new rules and changes? >> they have been scope-contracted and the cashiering system is going live in about a month and the new tax system is going live over the course of the year. we'll have to do change orders to them in order to accommodate gross receipts and those will be forthcoming. but the big major scope change is that we do to make a change

in order to accommodate the gross receipts tax in our tax system, the grm system. >> that is part of the request? >> that is part of the request. >> so currently, businesss do pay a number of taxes and we as the tax collector have to be able to track this information for the business. so they do pay property taxes both secured and unsecured. the payroll expense tax, our transient occupancy tax our hotel tax, utility users, access line, tourism improvement fees if they are hotels. litter abatement for cigarette retailers and police department and fire department, et cetera. all of these taxes will persist as we move into gross receipts. and and so we need to be able to build our systems to accommodate this level of complexity, while adding in our

gross receipts tax, and the grm software that we purchased has the ability to accommodate all of these taxes. although we did not purchase the license for property taxes. and as you well know the gross receipts tax is complex. >> why is that you didn't do that with the property taxes? >> because that would require us to work with the assessor's office. there is potential down the line for the assessor's office and tax collector's office to work together to purchase the property component of the software. and spoking to the gross receipts tax there are eight different categories. or tax schedules and four progressive rates depending on the type of business activity you engage in.

as i mentioned before twice as many businesss will actually be filing and remiting this tax. and they are going to have to report different data points. right now a business simply dells us this is how much payroll tax i have in san francisco and apply the 1.5% rate and then that is how much tax they owe. we're now going to have to continue to collect that information, plus what of their receipts was in each of the different categoris? because they can report in different categories and actually required to. and we will have to know much more about them and their payroll expense will need to be reported still for the tax and also in most cases for how they allocate, in san francisco out of san francisco taxes. for the business registration fees currently there are four fees ranging from $25 to $500. depending on your level of payroll expense.

and as you may assume, most businesses just pay the $25 registration fee because they don't have payroll expense. but when we move to the new registration fees, starting in 2014, we now move to 13 different levels. rates will go up for every single business and they will have to report to us their gross receipts versus their payroll and that is what will actually be determining what they pay. so if you had a business where you had no payroll expense previously, but you were bringing in over $1 million in revenues because you were selling something on ebay or something that got you that amount of money, then you were -- then you will have to pay us a much different amount. that gets determined by your gross receipts rather than your payroll and you may also have the gross receipts tax to pay. speaking to the timeline that we're under, i show you the rest of the filings that are

happening for this year. filings and payments i should say. that aren't impacted by gross receipts, but as we move into april and particularly may, of 2014, that is when we're going to have to have all of our systems ready to accept all of the information we're getting from the taxpayers pursuant to gross receipts, and also be able to tell them, all right you have told me this information about your gross receipts. so now this is what you owe in the taxes. and really have a place for that to go in our business tax system, the grm software. and also to have all of our rules and regulations set up so that we can actually implement this. so that end we do have the two pieces of legislation before you today. and they do provide for the initial funding and staffing to implement this large shift in how many people and how people

-- businesses interact with our office. the filing no. 121197 provides for the five positions, which is about 2.5 fte to commence the implementation of the gross receipts tax. we will be returning to the board threw the rough the budget process for additional positions as we move through this process. these are the folks that we knew that we needed to get start today and we'll be adding folks to the process. in addition, with our software expenses i know that certainly is a large number upfront, but this is what allows to us enter into the contract for the scope of work that allows us to get us to our go-live date and allows us to get there to have this tax filing ready. so we need to be able to commit the

resources now to these vendors and be able to executive an agreement, so that we can actually get to the 2014 date that. is why we're asking for it right now, so that we can get that going and not have to wait for the budget process coming up later this year. and i also provided a breakdown, but i know that the budget analyst's report does a much deeper breakdown and explanation as well. and just to close, before i ask for any questions, we do believe that we have a track record of success in implementation software and customer service enhancements and we think that we are going to be build -- our goal is to build this implementation to best practices rather than as-is. and so we are going -- and to that end we're going to continue to renew, review and ensure that we have the prop er

allocation of resources. we'll be returning through the budget process and seek board approval, but we do need to move forward right now for these funds in order to get the process started so we can actually hit our go-live date w. that i will take questions. >> thank you very much. i did have a question. so the staffing levels moving forward, do you have any indication of what that might look like yet or is that really going to be part of the budget conversation in what you negotiate between the mayor's office and coming to the board? >> it will have to be part of the budget conversation. what we know is that we're implementing a number of software enhancements. so this is going to certainly be changing the way that people work in our department and gross receipts tax will also be part of that. as we see that need, we'll be returning through the budget process. >> in terms of your staffing, you have the treasurer/tax collector with a ton of different taxes that you

currently collect, fees that you currently collect and none of those are necessarily changing. where your big changing is from the payroll to the gross receipts and you have a number of staff that i imagine are currently in the payroll side of the calculation and they would continue to provide that service for the time being as we phase out one system to another? as part of your thinking, with staffing levels moving forward, how do you imagine sort of the phasing in and out of one division or purpose to the gross receipts? >> well, for our taxpayer assistance, for our auditors, for your investigations, for our collectors they don't just do payroll or just do parking, but they are really cross-trained across awful our taxes and our needs. we envision that as well for the gross receipts tax. so this

information that we collect from the hotel operators, from our parking operators from our licensees is actually going to help us in figuring out and asession what taxes we need to be collecting from the different businesss? because the information that we glean from those licenses, permits and other taxes is going to help inform our gross receipts tax. so we envision our gross receipts implementation to be fully integrated within the organization. but it's just going to be that additional level of complexility in now dealing with taxpayers that is going to mandate that we have additional people. >> and then i did have a question as i was taking a look at the positions being requested immediately and not part of the budget process. one of the positions was for a human resource personnel. and so i'm imagining that they are go to be assisting with sort of the budget that is going to be coming forward,

with the additional personnel that is going to be requested potentially through the budget. so i'm just wondering currently do you have on-site a dhr staff or do you receive services from dhr? i'm just trying to understand what your structure is currently is for human resource support. >> let me bring up our deputy director to talk about that. >> through the chair, we do have a 1244 in existence right now in the office. we are requesting an additional 1244 to deal with what we foresee over the next five years, a lot of the position-based testing that we'll have to do, which most position-based testing, each test is taking upwards of 3-5 months to dot testing and requirements for those. so we want to begin the process to begin hiring the auditors that are necessary for the growth we'll have to do for gross receipts.

in addition, the large volume of staff that we'll be bringing on, we need additional human resources to just manage the hr issues pertaining to the number of staff. right now we have not been able to sufficiently meet the needs the division. >> would the intention be that they would -- because there is so much demand on the position-based testing and recruitment component you may flex back down to one? >> that is correct. we're looking at several models in the city. one that started with category 18 or three-year appointments and if they are required to become part of the normal regular headcount and dot

position-based test. and then we'll be looking at, if we need to, make them permanent positions. in addition, we have positions required for gross receipts. >> i had one other question that was for the first item, which is the09 53 director of gross receipts. i just wanted to understand that piece a little bit better, the salary level, salary and fringe level looks very high. so i just wanted to understand why it was that this was the category that was chosen? what that process looked like in order to arrive at that level? it's $246,000 and i'm not sure did it should actually be at that level, but that is what reported in our report. >> 09 53, there is a numerical error in the salary, i will look at that. the values were done through

dhr, so i have to go back and look at the exact number. the classification was chosen after looking at several different jurisdictions and looking at their staffing model. so we pegged and looked at what they are sort of leadership position was? what their salary grade was and what was comparable within the classification structure? specifically going back to comments, our vision for the organization is to not create a silo entity called gross receipts, but to have somebody come in and to really know about gross receipts from different municipalitis that will foytiate facilitiat the rules and regulations necessary, as well as start looking forward and sort of foreshadowing the issues that we have around ensuring compliance. how do we take the information we have from permits and license and third party taxes? how do we take the information that they are using and file and put that together and say does that make sense in terms

of compliance? how do we align that with our audit practices and go back and align it with what they are filing with the irs? so we need someone to architect that piece of work and not do it within a specific silo, one that will ultimately be more expensive for the city, but also disenfranchise the information that we're building within our database. to really look at it from a horizontal perspective how we integrate across the organization and a vertical perspective of information that they have and are able to bring forward from their experience. >> did you take a look at different classifications and how did you land on this one? were there other lower-cost ones that were evaluated? why was this one chosen? >> we looked at other jurisdictions to see how they had staffed it and at what level and what pay scale and the skillset that the needed.

>> and also needed a position that was reporting directly to the treasurer. >> did we take a look at other classifications within our own system to see if there was an appropriate one that would fit that was at a lower cost? >> we looked within our organization and what would be the right, appropriate level, given the reporting structures within our organization. we did not look at necessarily other classifications. we only looks at mea09 series and what was comparable within that. >> i'm wondering if the mayor's office might be able to address that a bit? were there other classifications reviewed rather than just the structure within the treasurer/tax collector? it could very well be this is right classification. i just want to understand that process. >> supervisor, as you know, all of the city's

classifications are reviewed by dhr and i know dhr did work with the treasurer's office to identify the appropriate classifications. the09 53 position, just the salary and range for that position is $125,000 to $159,000 on an annual basis. i think the information reflected in the budget analyst's report is the fully-loaded costs meaning the fringe benefits and the salaries as well. the deputy director 3 the 0 53 as i understand is the appropriate deputy director level for the treasurer's office based on their organizational structure, which uses the 0953 classification. >> if i just take a look at the high-end of that

classification, at $159,000, and i'm multiply it .42, i still only get $226,000, so i just wanted to understand what the differential was. why don't we go to the budget analyst's report. >> madame chair and supervisor avalos, yes, that number in our report on page 6 in table 2 does reflect fringe benefit costs. on page 6 we report that the proposed supplemental appropriation ordinance includes funding, requests of five new positions that includes one permanent position and four limited-term positions. and that would be funded as you know from the city's general fund reserve, the controller reported a current balance of $32.1 million, so that approval

of this request would result in a balance of $29.6 million. since this request is about $2.6 million. and as noted in table 1 on page 46 our report, the total contract costs of an estimated $12 million. so whereas this request only shows $2 million, the actual or at least the anticipated total contract cost is $12 million and that includes $9 million over six years between the treasurer/tax collector and mani tron manitron and contract of 21 xtech, that would be for $3 million over a five-year period, which is anticipated. and again, if you look at this request, as you know, you are only getting approximately a 6-month request. if you look at it on an annualized basis the salary cost of some $400,000 would

actually be over $800,000. we point out on page 7 of or report, that file 121197, amending the city's annual salary ordinance creating the five new positions is equal to 2.5 fte in 2013; with salary and mandatory benefits. that is the figure shown in table 2 on page 6 of our report. however, in order for the positions to be .5 fte, the new employees would need to be added to the payroll on january 1st, 2013. obviously, that can't happen. so furthermore, we point out that the proposed supplemental ordinance only includes -- that is the requested itself doesn't include that number

$418,185. so taking those two factors into consideration, the correct fte count should be .44, instead of .50, with a start date of january 22, 2013. and the earliest date that the board could approve this is january 29, 2013. so our recommendations are on page 7. we recommend that you amend file 121197. to reduce the fte count from .5 to .4fte and on to reduce the total count from 2.5 to 2.2. we also recommend that you amend the-- although, the department reported that four of the five positions would be limited tenure.

that is not specified in the annual salary ordinance. so our recommendation is to specify that those four positions, the09 22 manage 1 the 1053 senior business analyst, 1064 principal program analyst and 1244 senior personnel analyst are limited term for no more than three years. regarding recommendation no. 3 to replace $195,000 on reserve, this pertains to a city attorney's work order. supervisors, yesterday we received an explanation from the treasurer/tax collector's office as to a need for an estimated 600 city attorney h ours and we found the explanation to be reasonable and therefore withdraw recommendation no. 2 to place that $195,000 on reserve. consistent with voters approval, we recommend that you approve this legislation as

amended. >> thank you, mr. rose. and then just a follow-up question to the department, with regards to the contracts for the tech that. is really the largest component on an ongoing basis that we see so far without seeing the staffing that follows afterwardsment i'm just wondering did these go through the process of coit? was that reviewed by that group of individuals? >> the initial procurement for xtech and manitron gm software went through the technology store and was approved by coit. this additional change is currently moving through, the contracting process. >> so that hasn't necessarily flowed through coyote necessarily yet? >> that is correct. >> just to the mayor's office on this item, this is simply because it's sort of a change order more than anything, where you have to update the request based on the new law that has passed. so i'm wondering if this is somethn